Have you ever wondered why you handle money the way you do?
Perhaps you’re a saver and you feel satisfied every time you look at your growing account balances and displeasure when you need to buy something.
Or maybe you’re a compulsive shopaholic, looking at life as something to enjoy, so you buy on impulse and pay little attention to how you’ll survive in the future.
While many people believe that money-handling habits come from parents or caregivers, current research is proving that our habits aren’t just based on conditioning and money management lessons we learned as kids.
There are spenders and savers in the same families, kids who grew up in poverty and still develop great wealth, and heirs who blow the family fortune.
If it’s not how you’re brought up, what does shape the way you view money?
Experts are revealing that brain chemistry plays an enormous role in your financial habits.
Brain Activity
In a study published in the Journal of Consumer Research, participants’ brains were scanned as they pretended to make buying decisions.
Researchers observed activity in an area of the brain called the insula, which is stimulated when you experience something unpleasant.
The more stimulation in the insula, the less likely you are to keep doing what you’re doing. When it comes to money, insula stimulation can stop your spending.
On the other hand, the act of saving – either by having cash in a bank or by experiencing significant savings on a product or service – brings savers intense pleasure.
The victory of a good bargain makes everyone feel good, but savers feel the rush even more since it’s a relief from the discomfort of needing to spend.
Researchers concluded that people who have more insula activity in their brains are more likely to be savers, and those with less tend to be spenders.
And since we tend to skew to extremes, spenders can end up in financial trouble later in life, and savers can end up with great regrets.
Recognizing which one you are can help you reach a healthier balance.
The Spenders
In an early experiment on children, commonly called the ‘Marshmallow Experiment’, researchers at Stanford presented nursery school children with a tray of goodies that contained marshmallows, pretzels, and cookies.
Researchers told the kids to select one treat, and that if they ate it immediately, they wouldn’t receive any more, but if they waited only a few minutes, they’d receive another one.
If they could delay their gratification for a few moments, they’d double their candy.
They observed the children until they were adults and learned that the ones who were able to delay their gratification achieved much more success in life than the ones who wanted instant gratification.
If you’re a spender, you can’t delay the gratification. With cash in front of you, just like the marshmallow, you can’t resist the urge to have it right now even if you’d have later.
That’s why you don’t have much savings in the bank, but it doesn’t bother you. You’ve been happy making purchases and enjoying them at the moment.
It’s worked out well enough for long enough, so you just stick with the habit.
But if you’ve realized that you’re trending toward extreme spending, then you’re probably looking to kick or curb your habit.
These 7 ways to calm your impulses will help you cut back on spending
- Never use credit cards or other lines of credit. By using cash, you force yourself to consider just how much you’re spending.
- Withdraw cash from your bank account yourself, so that you can see the dwindling balance.
- Pay as you go. Don’t run a tab at a bar, and don’t pay everything up front for a romantic weekend getaway. Pay for everything as it comes, and you’ll better understand how all that money just “gets away from you.”
- Be vocal about your savings goals. If you tell close friends and family how much you intend to save and by what date, they’ll hold you accountable. You can even use personal goal setting tools like stick to put money on the line to achieve your long-term financial goals.
- Reward yourself when you meet your savings goals, but only by spending a responsible percentage of what you saved. This can help prevent frugal fatigue.
- Stop and ask yourself before each and every purchase whether or not you truly need the item. Know the difference between needs and wants.
- Look at the future, no matter how uncomfortable it is. Ask yourself questions like how much money you’ll need to retire, or how you’ll pay for your child’s college education.
Final Word: Do Not Worry Instead Pay More Attention to Your Financial Life.
Ultimately, we’re the ones who are in charge of our financial present and future.
It seems odd to me that we’re driven by an aspect of our brains that we don’t even fully understand.
But fortunately, this knowledge just might be what it takes to overcome our bad habits – whether that means excessive spending or frugality – and live our lives to the fullest, responsibly.
Wealth is more than just financial freedom, but a balanced relationship between health, time and money.
